The Money Watch

Friday, January 28, 2011

What is so alluring about active management? Well. . .it really is quite simple. Active management attempts to offer the ability to outperform a market, or a segment in the market, as measured by an index benchmark.

Meaning. . .in an index fund you are constantly holding all of the "good" stocks and the "bad" stocks. Active management, obviously, aims to select only those stocks which will do well and then stay away from the stocks which will perform poorly. And of course, if all of the stocks in the market were to crash, the intelligent fund manager would know ahead of time and pull the money in the actively managed fund out of stocks before investors lost money, thus proving the merit of active management. Would this be a good investment strategy?

Yes. . .in fact, sign me up! In fact, let's not stop there. Since the active fund manager knows when the markets will enter a period of poor performance, we might as well ask him what the nights winning lottery number are! And let's not stop there. . .I'd like to know. . .who's going to win the Super Bowl?

Ok, I'll stop right there. . .I'm being silly. . .

. . .In theory, it would be the prudent thing to do. After all, why would you want to invest your money in stocks that are going to perform poorly, especially when you knew ahead of time that they were going to fall in value?

Answer: You wouldn't. . .

The Truth: Sadly, it doesn't work like this. Active management simply gives the illusion of being able to outperform the market. When you look at the facts, the truth finds its way to the surface. . .

I'll leave you with a quote by the founder and retired CEO of The Vanguard Group, John Bogle as he commented on the lack of success of active fund managers.

"Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 outpaced the market by more than 1% a year. These are terrible odds." (2007)

Thursday, January 27, 2011

You can beat the market, right? I mean. . .all you really have to do is start watching Mad Money, maybe read through some financial statements, take a financial analyst's stock picks to heart or all of the above, right? Wrong! This is not how it works. The active management game is just that. . .a game. . .where a large percentage of the investment industry has marketed the idea that you. . .yes, you. . .can beat the average return of the stock market. Don't buy into this lie. . .your hard earned money is far too important to be so foolish. . .

But really, come on! Who wants to be average? I know I sure don't. . .I want to be a stand out. . .

Thursday, March 19, 2009

Ok. . .let's look at a fund that I'm thinking of adding to my Roth IRA. I am currently interesed in an extremely beaten down sector. . .real estate. It's no surprise to anyone that real estate has gone down substantially. In fact, it seems to have gone down faster than it went up. Either way, it has left me thinking. . .why not take a dip in the Real Estate Investment Trust(REIT) pool?

The REIT fund that I'm looking at is within the Vanguard family of funds. It is the Vanguard REIT Index Fund Investor Shares (VGSIX) fund. Currently, it pays out an approximate 10.24 % dividend - - -I am aware, however, that in the current economic climate this dividend could go down but wanna know what I think? Who cares! Even if this dividend gets slashed in half then it's still paying out more than 5%. This thing has gone down around 57 % over the course of the past year. Since January the fund fell around 27 %. . .

So why own this fund that keeps on falling??

Considering the fact that I'm 24 years old I am blessed in that I have time on my side. I am looking to get into this hopefully by the end of June if not sooner. If I had the cash now I would be happy to get into it tomorrow. I just feel strongly that real estate cannot continue on this path much longer. If anything. . .real estate will eventually bottom and this fund won't move anywhere in price and as a result I'll just have to stomach the 10% return from the dividend for a while! Hah. . .ok, that's a bit cocky. . .especially for this market. But honestly, how much more can real estate fall?

-Feel free to comment. Hopefully we can all increase our knowledge of investments and the size of our portfolios by bouncing ideas off of one another. . .

Wednesday, February 18, 2009

So. . .what's this all about? I guess it just kind of hit me. . .I'm never going to get ahead financially if I don't establish for myself a personal "financial constitution" of sorts. This is meant for something to hold onto, especially in times like these, to remind myself that I'm on the right track. I want to look back on this and say to myself that it was here that I truly established my priorities. The purpose of this blog is to discuss my view on personal finance issues. I don't ever assume that I have the answer but I feel that my ideas are valid enough to share with those of you willing to read on. I also want this to be a safe place where others can share their ideas and ask questions. I look forward to making future posts. . .